Add a tax, drop another

There might be a thousand reasons why people hate sales taxes, among them their visibility.
And in Alberta, where no provincial sales tax exists, there is justifiable pride that people have escaped one tax applied elsewhere in Canada. Many Albertans also rightly fear that its introduction would be just another way to separate taxpayers from their money and lead to increased and inefficient spending.

There might be a thousand reasons why people hate sales taxes, among them their visibility.

And in Alberta, where no provincial sales tax exists, there is justifiable pride that people have escaped one tax applied elsewhere in Canada. Many Albertans also rightly fear that its introduction would be just another way to separate taxpayers from their money and lead to increased and inefficient spending.

However, a provincial sales tax can make sense. But before you wonder if I’ve suddenly become a giddy convert to tax happiness, let me be clear: limited, moderate government is still the most desirable.

That means that governments don’t need to be involved in picking winners and losers in the marketplace through corporate welfare and other forms of crony capitalism. They do need be more focused on the protection of property and persons.

In other words, it makes a lot of sense to protect people and their property, to rescue kids from awful situations and to protect borders. It makes little sense to sacrifice tax proceeds for some politician’s latest silly idea on how to diversify the economy.

But, in the end, even more modest and limited governments still need tax dollars. The question becomes one of how to fund the “Leviathan,” as the philosopher Thomas Hobbes once labeled the state.

We don’t have to reinvent the wheel. Long before pundits and professors across Alberta started discussing whether a provincial sales tax makes sense, my colleagues at the Fraser Institute studied the issue and published a series of essays on this exact topic. Among the authors was Michael Walker, the founding executive director of the institute who, as far back as the 1970s, discussed the matter with Nobel laureates such as Milton Friedman.

It was Friedman who once stated that, while he was in favour of any tax cut, “some tax cuts are better than others.”

In 2007, three of my colleagues looked at what types of tax are more, and less, damaging. While the report’s title — Tax Efficiency — was admittedly dry, their point was in the subtitle: Not all taxes are created equal.

What did they mean by this? Some taxes, they found, greatly hinder the ability of an economy to prosper, while other taxes are less damaging. And why does that matter? Because jobs and our standard of living are the result of millions of individual decisions that can be negatively impacted by the wrong type of taxes.

For example, Alberta could increase corporate taxes, only to see business flee to Saskatchewan or Texas. Or it could tax high-income earners, as does Quebec, making it more difficult to attract physicians with a needed specialty to Alberta.

The point is that the wrong types — and level — of taxes are economy-wrecking, job-killers. A society gets the best bang for the buck when taxes are lower. And, like it or not, a sales tax is the least damaging tax that exists.

Here’s another reason why a sales tax makes economic sense: when people visit Alberta, a sales tax would ensure visitors help contribute to the tax coffers, to the upkeep of the province. That would help lighten the burden on the rest of us. And as long as sales taxes come with government refund cheques to the poorest, they are workable.

However, any talk of a sales tax in Alberta should be accompanied by the requirement that it be revenue neutral and be completely offset by the abolition of some other, more harmful tax, such as personal income tax. Otherwise, forget it.

Any tax reform premised on the notion that Alberta has a revenue problem is misguided. Adjusted for inflation, Alberta’s per capita program spending jumped to $10,526 per person this year from a mid-1990s low of $6,825; that’s a 54 per cent jump in real terms. Alberta’s biggest problem has always been that it lets spending get out of control. The exact tax mix is secondary to that issue.

Until Alberta deals with its high spending problem, it won’t matter what kind of taxes the provincial government levies — unless of course, the provincial government ultimate aim is to turn Alberta into another high-tax, economy-wrecking, job-killing Western version of Quebec.

Mark Milke is director of Alberta policy studies at the Fraser Institute. This column was supplied by Troy Media (www.troymedia.com).